Closing Bell - Closing Bell: Record-Setting Rally Set to Roll on? 6/7/24

Episode Date: June 7, 2024

Investors still debating the fate of the rally with stocks once again reaching new highs this week. But can the momentum continue? Fundstrat’s Tom Lee and NewEdge Wealth’s Cameron break down what they’re expecting. Plus, their takes on the plunge in Gamestop shares and what they’re watching ahead of Apple’s WWDC. Meantime, Charles Schwab’s Kevin Gordon says now is the time to take profits in the high flyers. He tells us why and where he’s telling clients to put their money to work. And, 3Fourteen’s Warren Pies is changing his stance on the energy space. We drill down on why – and what it could mean for the broader market. 

All right, guys, thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the markets and why big time bull Tom Lee says he was buying stocks today no matter what the jobs report said. He's with me momentarily to explain. We will show you the scorecard now with 60 minutes to go in regulation. Major averages, well, they've been a bit volatile today with investors deciding whether the better than expected jobs print was a bit too hot to handle, especially for a market still pricing in a rate cut later this year. However, 53.54, it's a good number to watch. Why? Because that is the closing high. We were above that a few moments ago. We'll track it over the final stretch to see if we can go to the weekend with a new high for stocks. Yields, well, they're higher too. On the news of the jobs report, that's had a bit of an impact, as you might imagine, on equities. Yields, well, they're higher, too. On the news of the jobs report,

that's had a bit of an impact, as you might imagine, on equities. There you go, 442 on the 10-year. The big single-stock story of the day, you might have heard about it, is GameStop. And that's given that live stream from the so-called Roaring Kitty trader. Those shares, though, down sharply this hour.

Take a look. More than 40%. We're going to have an update coming up. It does take us to our talk of the tape, the fate of the rally with stocks once again reaching new highs this week. So can the momentum continue? Let's ask Tom Lee. He's Fundstrat's managing partner and head of research. And as you see, he joins me now. Tom, it's good to see you. Welcome back. Good to see you, Scott. That was the news of the day this morning. We're buyers of stocks on Friday,

but even stronger if the jobs report is soft. The implication being you're buying no matter what. So it wasn't soft. It was hotter than expected. But nonetheless, why did you come into today thinking you were buying stocks regardless? Well, there's a couple of reasons, Scott. You know, the first is that I think markets are much more focused on inflation reports and CPIs next week and the June FOMC meeting on Wednesday. And the second, which of course we think is going to just show a continued improvement in inflation. But the second is that stocks really historically have done well in the week following the release of the employment report, rising roughly 70% of the time.

And it implies roughly 50 to 80, sorry, 70 to 80 points in the S&P. Of course, it would be better if it was a soft jobs report, and it wasn't. Well, it's funny you say that. It would be better if it was a soft jobs report, because I think the market spent a good amount of today trying, deciding what it was. Was it good news is good news, good news is bad news? I mean, if the market doesn't necessarily need rate cuts, why is a softer report better? Why can't we just be happy with good news? Labor market's strong, economy's hanging in, don't need rate cuts, and still may get them later this

year. I mean, I generally agree with you, Scott, but as you know, there's a faction of both market participants and FOMC that view some of this data as too hot for them to be comfortable with. And I think, you know, the more positive data points you get, the more you might actually start to see markets pricing a hike. And so I think you're right. There's a there is a Goldilocks window. And but it's safer to say bad news is good news because those actually clearly take away inflationary pressures. I'm wondering if you think in any way that, you know, thinking that June is going to be the point of the year in which we start to get this money off the sidelines and into the market and how Goldman Sachs framed it the other day, talking about a, quote, wall of money coming in, but not really until July, that you could have some selling between now and then, but that the beginning of the third quarter and thus the second half of the year is the area to really plan for a wall of money coming into this market and then pushing stocks that next leg higher.

Scott, that dynamic is certainly at play for a couple of reasons. One, you know, April was a down month and I think a lot of institutional investors actually sat out May thinking it was April was a start of a bigger correction. So June is when money starts coming back in. But I think more importantly, since the end of 2022, I think a lot of institutions and a lot of high net worth individuals sort of sat out this market saying, hey, I'm happy earning 5%. By the middle of this year, if the S&P is up 15%, on top of missing 30% last year, I think a lot of folks are going to say, listen, I can't just sit on cash and earn 5% anymore when I'm missing out potentially on a 25% year for the S&P. Tom, would you make it a fact a couple times this week we had rates go down and stocks go down? Not exactly the dynamic that many had been expecting, right? Because that's not the way that stocks and rates have been reacting, right? They've been pretty well

correlated. Rates down, stocks up. Well, there were a couple of occasions this week where that didn't work. Why? It's kind of hard to tell, especially day to day. But if I had to guess, you know, we don't want to be in a situation where the economy is slowing so much that we've actually hit stall speed. So rates would go down. That type of economic dynamic would scare stocks. So it's almost like bad news is too much bad news. In fact, maybe that's why today's jobs report kind of fits right in the middle because it's actually good enough to tell us the economy is still strong, as you said,

but it's not enough to actually add to inflationary pressures. Tom, what if, you know, this market is just screaming out, it's NVIDIA's world and we're just living in it, right? I mean, NVIDIA's up, markets are good. NVIDIA's not doing much. S&P can't do that much.

NASDAQ's negative today. It's a one stock story. I mean, NVIDIA is really a generational story for now because I mean, how many three trillion dollar companies actually have doubled. You know, I mean, so clearly NVIDIA is important, but it's important because it's really one of the most important ways to get exposure to AI. And I think the AI story is, you know, early innings, as many people talk about, it's transformational in terms of productivity, and there's a lot of use cases developing. So as much as it might feel like a one stock market, as you know, there's a lot of stocks at more than So as much as it might feel like a one stock market, as you know, there's a lot of stocks at more than 20% year to date. And I actually think breadth is likely to increase. So for investors, there's a lot of opportunities in the second half. Yeah. I mean, that's the one question, whether this broadening rally that we had enjoyed

has suddenly become too narrow once again, and it's all focused on the mega caps. Whether it's, if it's not NVIDIA today, it's Apple on the run. You're still comfortable suggesting that people buy those stocks even at these levels? Yes, because these companies aren't at valuations that are really what we call demanding. I mean, the cost of debt for the MAG7 or the FAANGs

is lower than many governments. They're still growing earnings at 20% and top line 10%. I don't see why investors shouldn't be paying much, much higher multiples for these stocks. And now when we look at the rest of the S&P, you're paying a median P.E. of around 16 times with yields falling. So I think the whole market actually has multiple expansion potential. The other point you make today is that you want to stick with what's working. And that obviously plays off the Nvidia story. But also you suggest financials and industrials are a place to be.

Now they may have been working, but I'm not necessarily sure over the last month they've given a lot of enthusiasm to investors that they're going to continue to work. Why do you think they will? Well, both stocks are responsive to a healthier economic outlook. So you're right. I think in the past month, they've done poorly. And I think part of it is because there has been some doubt about sort of the robustness of this expansion in labor markets. But the PMIs look like they're turning. New orders could be bottoming. Historically, that's very good for industrials. And the case for financials really depends on the Fed maintaining a dovish

bias, which is what we expect. And I think that's going to come out in next week's meeting. And that's a tailwind for financials. All right. I want you to stick with me because I'm going to come back to you. But I do want to talk about what's going on with GameStop here, Tom. It's down 40 percent, and that is following Roaring Kitty's live stream earlier today. Christina Partsenevelos has been following that and she is here with more. What do we see? Well, the shares are actually facing their worst session in three years. And at first, you actually had the surprise earnings release this morning. Sales down 29 percent year over year. The report was worse than expected. Then you had the announcement that the company plans to sell up to 75 million shares.

And then lastly, like you mentioned, the YouTube stream by Keith Gill, the meme leader, a GameStop investor known as Roaring Kitty. Shares were actually halted 17 times on that volatility with over four times its 30-day average trading volume. So a lot of movement. In the YouTube stream, there was no major GameStop revelations from Keith Gill, who didn't actually wear his infamous red bandana, but he did speak to his belief in the fundamentals of GameStop revelations from Keith Gill, who didn't actually wear his infamous red bandana,

but he did speak to his belief in the fundamentals of GameStop and the ability of CEO Ryan Cohen to turn things around. Listen in. That's what folks should be focused on, you know what I mean? And that's probably going to be an ongoing debate as to how people feel about him, whether he can successfully transform that business. But short seller Andrew left. Scott, I know you talked about spoke to him earlier in Halftime Report actually disagrees and is still undaunted by his short selling loss last time. Listen to his position. Fundamentals don't match up to the stock price.

And I think the dynamic is different this time than it was back in 2021. So, you know, it was a decent trade. It's a small position. Andrew Leff's position might be small. Keith Gill, though, did share his portfolio positions, 5 million common shares, 120,000 call options with a strike price of 20 bucks, expiring, though, in two weeks. So he's talking about the fundamentals. And yet his call options with a strike price of 20 bucks, expiring, though, in two weeks. So he's talking about the fundamentals, and yet his call options expire in two weeks, which still means he's in the money, given where the share price is above 30 bucks right now. But he was very quick to remind viewers not to follow anything he does. Quote, it's not investment advice. He said that several times throughout the stream.

Right. They're not heeding that advice. Let's just say that. Christina, thank you. Let's just say that. Christina, thank you. Thanks. I appreciate that. Let's bring in Cameron Dawson with New Edge Wealth, of course. And Tom Lee is still with us, too.

All right, Cam. So you're a student of markets, okay? I know you. You study the history of markets, right? What does this scream out to you as if anything? On GameStop and the meme trade. I think that it reflects liquidity and risk sentiment, which is that this kind of trading wouldn't be happening in a year like 2022 when people are scared.

It reflects the fact that there's a ton of liquidity sloshing around and people still have risk appetite, which means that they're optimistic about the future. You can see that in retail allocations. AAII surveys are only about 2% off of their all-time high or recent high, which just suggests that people are invested and they're looking for ways to juice returns. You can see it in options activity and in other speculative tech, crypto as well. I think it's all reflections of a similar trade. So, Tom Lee, I've had some suggest this is fine and totally normal. It's just, you know,

that the purists, so to speak, the old school folks who've been around the street a long time just don't know how to take this kind of activity. I've had others suggest this whole thing's making of the markets how would you assess this you know if GameStop was a top 10 wait in the S&P or in the Russell 3000 I'd be concerned but as you know GameStop it is not a huge market cap stock and I think that there has been plenty of stocks over my more than 30 years of covering stocks that have become cult in their following or valuations have become larger than what would be explained by the underlying earnings power but to me it's not a big enough stock to tell me that this is a market froth in general but is that the right place to look? I just wonder, Cameron, if it's a big enough batch of hype in and of itself that here we are talking about a live stream on YouTube today and we just showed you the clip.

Some are going to look at that and have a hard time keeping a straight face. So it may not be the stock nor the market cap nor the valuation that screams out what's going on, But the mere fact that we're spending a lot of time talking about a smaller stock because it's sloshing around in this market in such dramatic ways. Yeah, look, it's good for business that people care about the market. And clearly it's reflective of the fact that you have seen people really leg back into this market when we look at allocations. I think it's interesting that this kind of meme rally is very different than what we saw in 21. It's not nearly as broad. To your point, it hasn't metastasized in other areas. ARK is sitting out. Recent IPOs are sitting

out. So it seems a lot more narrow than it was, which just means that maybe it's just is a passing fad. Unless you think it's, you know, Cameron, like a bifurcated mania, that some of it's towards GameStop and some of it's towards Nvidia. Yeah, look, and I think that you could also make the argument given option activity in overall semiconductors that there is some mania and expectation for really powerful growth to the upside,

which if we look at Nvidia, the valuation isn't nearly as much stretched. You do have the stock up significantly year to date, but so are earnings estimates. I think the real challenge when we look at a lot of the names that have moved a lot is if they keep going up, but fundamentals drift in the other direction. That's when you get scared. That's what happened in the late 90s and early 2000s, of course, is when fundamentals diverged from price. And that's when you got the peak of the bubble.

OK, well, another stock that's been on the move alongside NVIDIA in some respects is Apple, because it's come roaring back. The Worldwide Developers Conference kicking off on Monday, as you know. Steve Kovach is here for a look at what to watch for ahead of that big event. It's fair to say, too, it's good to see you. This really is a moment of truth. Oh, no, I have no problem saying this, Scott. This is going to be Apple's most important software announcement since it launched the App Store, believe it or not, 16 years ago. That's because Apple's the only one of its peers in big tech that doesn't really have a real AI story to tell yet. All going to change on Monday, of course. By now, we've heard all the reports and the rumors, a partnership with OpenAI to put ChatGPT technology in the iPhone,

maybe a similar AI deal with Google as well. Also, long overdue improvements to the Siri assistant and, according to Bloomberg, advanced voice controls for Apple's apps. I think that last one is super important because if it ends up happening, it's going to be a hint at how Apple views of how we'll interact with the iPhone via artificial intelligence. You can kind of imagine it opening up developers so they can tap into Apple's AI system. And that brings us closer, of course, to that dream of an agent, the truly intelligent assistant that understands natural languages and can take care of things for you. We've seen a number of Apple's peers try to show their vision for that as well in recent weeks.

But none of this, Scott, is going to matter if it doesn't boost Apple's main businesses, iPhone and services. Then again, it might not matter. We were talking about this earlier. Major upgrade cycle could just be happening anyway. Just people have old phones. They're ready to upgrade this fall. Although it's hard to imagine, I guess, that if we're having an event in June and then

you think a new phone is coming in September, why you would take the plunge now and not wait, which leads to my other point. Given the weakness in iPhone over the last many quarters, which is still half the business, OK, more than half, we may not actually get any answers for months. Exactly. Hasn't really been the case with other AI players. Make an announcement. You get the benefit of the doubt.

Stock is off to the races. Hello, NVIDIA. And you just have to say AI a couple times in your earnings call. But that's kind of going away if you think about, look what happened to Salesforce. Look what happened to a number of other software names. You do kind of have to prove there's a monetization strategy behind your artificial intelligence. For Apple, that's pushing phones. It's pushing services. So I am curious. Bloomberg did report that the OpenAI bit of this announcement, that partnership is going to be

opt-in. That made me think, is it going to be paid? Now, OpenAI charges you $20 a month right now to use their latest and greatest features. Does that mean Apple offers something similar to be determined? But that's another interesting to watch. Also, the developer tools. Keep in mind, adding new features for developers gets them more active in the App Store, which gets them selling more apps. The App Store has actually been having a resurgence in the last year or so after kind of falling after the pandemic. So there's massive growth opportunities still to be unlocked within the App Store. AI could be part of that. So you're saying, I mean, the phones are already, you know, they're not cheap to buy, right?

The ASP has been going up for... Well, that's because they simply just raised the prices. I wouldn't be surprised if they do it again. Well, because they would somehow, you would think, you know, either charge a subscription or if it's integrated into the phones, the cost is going to get offset somewhere, wouldn't it? Well, and that's the other thing that I'm looking for in the fall is what unique artificial intelligence feature does that next model of the iPhone have that the other iPhones, the one that all three of us have right now in front of us, won't be able to tap into that will make people say, hey, I need to buy the new one because it's going to let me do this amazing AI thing that my current iPhone 10 or 11 or 12 can't do. Yeah, unless you get the software upgrade as routinely comes with that. Cameron, Tony Pasquarello, Goldman Sachs.

Speaking of these stocks, the mega caps, I certainly would not be looking to stand in the way of this freight train. One that is fundamentally rooted in totally superior earnings growth. Is that enough reason to keep buying these stocks? I think it is, at least through the third quarter of 2024. And the real test will come in 2025, when the second derivative or the pace of change in that earnings growth really starts to slow. So you have earnings growth at the pace of things like 120% for NVIDIA this year.

That's set to go to 50% next year. Amazon goes from 80% down to 30%. You'll have a test to see if that's enough in 2025. Those are still great numbers, but they are significantly slower than what we got in 23 and 24. So for now, it's still good. A lot of the valuations aren't quite as stretched, but a name like Apple, I think, is important to watch. Its earnings estimates have gone nowhere this year. They've been flat. It's all been valuation, multiple expansion, and contraction that have dragged the volatility in the stock.

We think for Apple to work, you really have to see earnings start to inflect higher. I'm wondering, Steve, just really how high the bar is. You have a week in which there was a major newspaper writing an article suggesting that Apple missed the boat, right? That they were so late to the AI game. Does that mean the bar is high or is the bar low? They just have to do something that sounds great and get credit for it in the market. And then the proof will be in the pudding in the new upgrade cycle when they have a new phone. I read all the same analyst notes that you do, and they are all hungry for a reason to say, this is the catalyst moment. This is the thing that's going to happen. So it almost doesn't

matter what they announce. At the same time, Tim Cook himself has set the bar pretty high, saying we're going to show something new and novel that we've never seen before in artificial intelligence. His quote, I keep quoting him on this, we're going to break new ground in artificial intelligence. To me, that means something brand new. That means something we haven't seen before from OpenAI and the others. Whether or not he lives up to that bar he already set for himself is another story. Tom, you know, in the thought about whether, you know, we should keep buying these stocks because we think they're going to go higher, I mentioned the Pasquarello note from Goldman Sachs. But Wells Fargo has an interesting note out today, which talks about

Microsoft, Nvidia andIA and Apple. Of course, the three three trillion dollar market cap companies now accounting for 20 percent of the S&P 500, which to them suggests the performance of large cap portfolio managers benchmark to the S&P will be driven to an even greater extent by their relative positioning in these three names. What do you make of that? Mechanically, he's correct. You know, there is this 525 rule that restricts portfolio managers from having more than 25% of their holdings in five stocks. So then they're forced to make essentially suboptimal asset allocation decisions away from the MAG7. It does create an advantage for fund managers that aren't constrained that way, whether

it's levered funds like the 13030 or hedge funds. But it also is, in my mind, an argument for market breadth to increase because these funds, which will be 100% invested, have to find other stocks to sort of for alpha. And I think that means the rest of the S&P can participate. The flow show of Bank of America today, Cameron, says they got the largest tech inflow in nine weeks. So, you know, the parade continues into these names. And tech has been the only sector that has had massive inflows over the last 12 months or so. And on the concentration question,

it seems to be that it's only a problem until it is a problem, which means that it's kind of like deficit spending or like eating too much ice cream. It's only a problem once you get to the point where you get to the extreme. But if you look at history, you can see that there are times where you got to peak concentration,

nifty-fifty in the late 60s, in the 2000s in the tech bubble. And of course, that caused major leadership rotations where you had big weakness within those growth-concentrated names, but big strength in value and cyclicals. We think it's way too early to make that call, but when it happens, you could see some big, huge tectonic shifts. All right. Guys, that was fun.

Cameron, thanks for being here. Tom Lee, great thanks to you as well. And Steve Kobach, I look forward to seeing you out in Cupertino. Yeah, we'll be there. At Apple Park. We'll see you on Monday. Do not miss, by the way, another reminder, our coverage of WWDC. You can tune in to Halftime Report and Closing Bell on Monday.

We'll be there. Mr. Kobach will be there. Dan Ives is going to be with us. We're loading up the boat because this is going to be a big deal. We're just getting started here. Up next, the Schwab Playbook senior investment strategist Kevin Gordon's back. Find out why he says it is time to take profits in some of those high flyers and where he thinks you should be putting your money to work right now. He joins us at Post 9 next. Welcome back. The S&P 500 trying for yet another record-closing high today,

and that's after erasing earlier losses following the jobs report. Let's bring in Kevin Gordon, senior investment strategist at Charles Schwab. Welcome back. Good to see you. Good to see you. I want to go right where we teased you at. Take some profits in the high flyers. I mean, why? Why not ride them? Yeah, I mean, it doesn't make sense for, again, every single investor. We have more than 30 million investors across nine trillion assets. I know, I know. But, you know, when we I was thinking back to when we wrote our outlook for this year, you know, six months ago, maybe seven months ago, and kind of this whole notion that we've, you know, had for a theme that we've had for the past couple of years,

which is rebalancing maybe less based on the calendar, more on a volatility basis. And it's not, you know, just back up the truck, dump everything that's been a high flyer and then add to what's not working. It's just kind of don't be afraid to take some profits when you have these outsized gains, whether it's in a single name. You know, obviously the focus is on NVIDIA this week or today. Isn't your focus on NVIDIA too? I mean, aren't you zeroing in on things like that when you make a call like this? It's interesting because if you look at the contribution to the gain so far,

not just year to date, but maybe take it over the past four to five weeks, if you did take out NVIDIA from the S&P, you wouldn't be back at an all-time high. You've actually been trending just a little bit lower. But looking at the, zooming out a little bit, broadening the picture, the rolling 30-day or 60-day correlation between changes in NVIDIA and changes in the S&P 500 has come down from about 0.9 earlier this year, mid last year, now to about 0.3, 0.4. So it's good because you can still see gains in a name like that or in a sector like tech, but you don't necessarily have to rely on it as much or see a gain there to have a gain in the rest of the market, which I think is a constructive thing. When you work for a firm like Schwab, which has such a dramatically large retail cohort using

your business, and you see things like GameStop and NVIDIA, what do you think? What are you guys telling people? Going back to your discussion back with Cameron and Tom, just about risk appetite and how sometimes you can see

risk appetites really come back. Even in a time, you compare it back to the meme craze in 2020, 2021, we were in a totally different economic situation. We were in a totally different rate structure, rate situation. And I think that, you know, it probably speaks to maybe something that shifted a couple of years ago where there's been this kind of cult of equity that has come in and maybe had some staying power. But I think that, you know, the point that Cameron was making in particular about this being much narrower in focus, it hasn't really spread to the IPO world

or hasn't spread to the SPAC world. Both of those areas of the market really haven't come back to life as much. So it's kind of a whack-a-mole situation where you've got individual names that have these moves every now and then. But, you know, I think it speaks to the broader environment and risk appetite situation for some investors still willing to lean in. I mean, it's pretty remarkable when you hear, you know, somebody from Interactive Brokers, for example, on our network earlier today say, yeah, it's the second biggest stock in terms of trading activity for us behind NVIDIA. Yeah. That says everything, though, when these two stocks are dominating the action and the narrative and everybody's attention.

Yeah. And I will say, though, you know, I've been over the past six months, you know, fortunate enough to have traveled the country, visiting different clients and speaking and listening to them. And I think what's been consistent and we often find this, especially in turbulent times, whether it's a lot of volatility to the upside or the downside, you know, clients that make it through these periods the best are ones that take more of an advised approach. So if you're not focusing as much day-to-day on these swings, and yes, there's going to be exposure to

the NVIDIAs or the GameStops of the world, but if you're not getting as caught up in that, and if it's not the huge chunk of your portfolio, then we find that clients write that out better. What about just the market in general here as we, you know, here we are in June, right? We're almost at the halfway point. What's your outlook? Are you optimistic? Well, I will say we're putting together, Lizanne and I are putting together a mid-year publishes on Monday.

But, you know, generally the outlook, and I think what has changed over the past couple of weeks, a little bit for the worse, not detrimental, not fatal, but, you know, you've had a steady deterioration in breadth. So far, it's been concentrated more in, you know, the percentage of companies that are above their 50-day moving average if you're looking in the S&P. But it hasn't yet filtered over into the percentage that are above their 200-day. So for the most part, you know, you've got 70% of names in an uptrend. I think that's relatively healthy.

So as long as you go through that consolidation, you go through this rotation, as that metric stays relatively healthy, I think that's a good thing. Coupled with the fact that from a broader macro picture, when you look at where we are with GDP, which is still slightly above trend, if you're looking at it on a longer term basis, and then inflation, which is still a little bit below trend, again, if you're looking at it on a longer term basis, that tends to be the best zone for the equity market. And it's still relatively healthy, even if you downshift with growth slipping a little bit, you know, at trend or below trend and inflation still staying below trend. The real difficulty you get to is when inflation or if inflation gets above trend again. But you are keeping a close eye, though, it sounds like on the narrowness or the re-narrowing of the market. Absolutely. And I think it's been a shorter term phenomenon. It's only happened in the past, call it three to four weeks. So I think that, you know, I don't

want to be so kind of, I guess, early to jump in and say that you're going to have this remarkable breakdown because so far you've had a lot of deterioration under the surface this year. I mean, the average drawdown, max drawdown for a member in the S&P so far this year is down 15%. It's down 30% for the Russell 2000. It's down 30% for the Russell 2000. It's negative 36% for the Nasdaq. So you've already had this happen where you've had rolling corrective or rolling bear market activity. It just hasn't yet made its way up to the index level, mostly thanks to some of the mega caps that have been doing a lot of the work lately. Good stuff. I appreciate your insight. Good to see you. Thanks, Kevin. All right. Thanks,

Kevin Gordon of Schwab. Up next, 314's Warren Pies is changing his tune on the energy space. He's going to tell us exactly why he thinks it could impact the broader market in a big way. It's after the break. We are back. Oil and energy stocks setting up for another weekly loss. It's crude oil's third negative week in a row, by the way. And our next guest says there could be more pain ahead for that trade. Let's bring in Warren Pies of 314 Research.

Welcome back. It's good to see you, man. Yeah, it's good to see you. Thanks for having me. So I'm looking week to date, right? Down 3% is the sector. Over one month, it's down about 3 2 3%. Is that trade in trouble? Yeah, I would say it is. You know, we came into the year pretty bullish on oil.

I think that when you go back to how we came into the year, everybody was basically pessimistic. And our view was that we could get up to 90 bucks a barrel by the end of Q1. But we did think that was a soft ceiling. And it was one of those rare times where the market did exactly what we thought it would do. So we got up to like 90, topped at 92. And then we looked around and everybody had kind of piled onto the trade. If you go, if you listen to the kind of the average generalist that comes on your show, energy becomes a very consensus call around the beginning of April. And we saw that in the data, in the futures data. And we also saw that in the expectations for the OPEC meeting. So that brings us into last weekend's

OPEC meeting, where everybody expected OPEC to continue supporting the market. And our view is that any wobble in this OPEC supply cut that they came, they did two of them last year, one in April and one in November, any wobble there was going to be really negative for crude oil. And that's what we saw. So the cartel came back and said, we're going to add oil starting in October of this year, 200,000 barrels a day. They increased baseline production for some of the other countries, UAE, Russia, Nigeria. And the market has basically puked out on that.

And I think there's going to be persistent weakness for the rest of the year, probably. I think we've seen crude oil for this year. Well, I mean, there's not like the most direct correlation necessarily between what crude is doing as a commodity and then what energy stocks are doing as individual names, right? I mean, look at crude at 75. There are probably a lot of energy companies within the markets here that are printing money at 75. Yeah, no, I mean, and you also have to look at there's a huge component of the energy sector. If you're just talking about like the XLE or whatever, that's some refiners. So they're playing a spread game anyway. So it doesn't make a lot of sense to buy like a Marathon Petroleum or something like that just based on your crude oil outlook.

You have to have an outlook on the refining margins. And so I get what you're saying there. And I also like energy within a balanced equity portfolio as some kind of hedge, because you never know what's going to happen. I could be wrong. Geopolitical things could happen that could cause oil to spike. And that's negative for stocks and bonds. And so energy does things in your portfolio that nothing else does. But if you're asking me on a standalone basis, anything with a really strong oil beta, I think is going to be, is going to suffer on a standalone basis going forward, at least until we get a lot of pessimism back into this market, get everybody back on the other side of the, on the bearish side of the vote. I see here that your base case is a broadening out

of stocks. Why so? Okay. So I think that your last guest in you you had a good conversation about this and honestly it's really the most important factor in the broad market right now so the base case we've had a really strange breadth divergence and we've had a few of these if you go back to last year we had one in may we had one in november and now we're getting one again and and the reason we you have to give think, the benefit of the doubt to the trend that's in place, which has been these mega caps run and then the rest of the market catches up. We saw that last year a couple of times and that's the setup right now. But I think it's important to recognize that when these things happen, so specifically when you see the S&P 500

make a new high, if the equal weighted S&P 500 doesn't confirm within 90 days, that's a very bad thing for the market. And so far, that's where we're at. We had the S&P 500 make a new high on May 15th, and still equal weight S&P is like 3% off its highs that it made back at the end of March. And so the clock is ticking. You have basically till August 15th, based on our analysis, for the rest of the market to broaden out. That brings the Fed into play next week. I think that's going to be a huge, huge issue and something that's going to really decide whether this market broadens or falls apart because of weak breadth.

All right. We'll timestamp it. We'll mark our calendars. I mean, one issue, obviously, for the broadening is like we experienced this week. We're talking about things like growth scares, right? Rates go down, used to be good for stocks. Well, not this week necessarily because that brought growth scare into focus. That hurt the broadening of the market. Those cyclical sectors obviously get hit in that scenario. Yeah, I mean, I think the market's trying to decide what it wants here. I think really wants the soft landing to stick, which is like job growth, but not too much job growth and decelerating inflation. You know, I think if you step back as an equity investor and this is like I like to work from first principles and just look at what I keep it really simple. I think you want the economy to grow. And so ultimately that's the better

potential outcome for the market. If the economy's growing and the Fed has basically said they want to loosen policy, you're in a pretty good position as an equity investor. And I think that's got to guide us. Even if we see scary things like breadth and other, you know, I think some of the things that happened with NVIDIA the day it reported earnings and how it was up and the rest of the market was down. That was very strange and unprecedented in markets. But ultimately, growth intact. Fed wants to loosen. You have to give you have to be a bullish bias in that scenario. Believe it there.

Warren, I appreciate your time. Thanks. Good weekend to you. Once again. All right. Up next, we're tracking the biggest movers into the close. Christina Partanelis is standing by with that. Tell us what you see.

We have the approval power of the Food and Drug Administration on full display today with two different pharmaceutical stocks. All of us have those names right after this short break. 15 from the bell. Back to Christina now for the stocks that she is watching. What do you see? Well, investors are showing confidence right now in Eli Lilly ahead of its meeting with FDA officials on Monday.

Recent trial data for Eli Lilly's experimental Alzheimer drug revealed no major red flags. This is just yesterday. But it did raise a few concerns about the safety of the treatment. Nonetheless, analysts at Jefferies, Cantor, Fitzgerald, and Guggenheim all believe the drug will be approved. That's why shares are up 1.5%. While Eli Lilly awaits FDA approval,

biopharmaceutical firm Gurin did get the snap of approval today for its blood disorder treatment. Much like Eli, analysts were expecting the approval, they just weren't expecting it today, hence the stock pop. And I should say, up 17, almost 17%. Scott. All right. I appreciate that. Christina Parts, Nevelos. Good weekend to you. You too. Still ahead. Thank you. Shares of big box retailer Walmart. There they are down 2 percent today. The company's CEO, Doug McMillan, speaking at its annual meeting just a few moments ago. Got the highlights and we're going to break down

what is weighing on that stock specifically. The bell, right back. Coming up next, gold losing some of its luster in today's session. Tell you what is weighing on that space, what it might signal for the future of this rally. That and much more when we take you inside the Market Zone next. We're now in the closing bell Market Zone. CNBC Senior Markets commentator Mike Santoli is here to break down these crucial moments of the trading day Melissa Repco with the

headlines from Walmart's associates meeting gold prices sliding today Sima Modi with those details all right big thought end of the week. Mixed jobs report mixed market reaction this market is is sort of this machine for absorbing

these one off factors and and essentially kind of synthesizing them into kind of a calm index performance. We're holding most of our gains. I find a couple of things interesting. One is you have a little bit of a headwind with NVIDIA, the fever having broken yesterday, a little bit less volume. We're going to wait for the split to become effective. And you did have at least a modest response from industrials today on the lower yields and decent jobs number. It felt as if, as I said yesterday, the market was wanting the jobs report to give them permission to celebrate lower yields. And we only got kind of half permission to do that. So here we sit, Apple at the very high of a one-year range. This stock peaked

twice in the last year at 196, 197. Perfect going into next week's event to see if that can be the next preoccupation of a market that really is trying to get by on pockets of strength, offsetting pockets of malaise. Interesting moves in Broadcom, for example. I know Nvidia sucks the oxygen out of the room, but Broadcom up about 6% on the week. You know, Uber's been trading very uneven. Lyft has a big day, and now Uber itself is up about 7% on the week, too.

It's not just an Nvidia story or an Apple story, but it certainly feels like one. Crowd's striking, too. It only is if you're just kind of aggregating the market cap effect. It's not if you're talking about what's up, what's down, and the themes running through this market. It's still uneven, but in a selective way, not in a way that feels like it's responding to stress. Yeah, meta up 5.5%. I was just mentioning CrowdStrike up 11, all of these on the week. All right, let's talk about Walmart's associates meeting. Melissa, what can you tell us? Yes, Scott, the event that brings Walmart shareholders and employees from across

the globe to its hometown in Arkansas just wrapped up. And one of the themes in the past few days is Walmart talking about how it's trying to compete. Amazon is hot on Walmart's heels and even though Walmart is big, Amazon's on track to surpass Walmart with 6% revenue growth year over year versus Amazon, which was 12% year over year. And that puts Walmart in jeopardy of losing its title as the nation's largest retailer. So in the past few days, we've heard from CEO Doug McMillan and CFO John David Rainey talking about how they're trying to compete on convenience and speed along with low prices. In the past 12 months, the company has delivered 4.4 billion items on a same-day and next-day basis, and 20% of those were in three hours or less, a competitive advantage it can offer because of its store footprint. John David Rainey at CFO spoke today about how it's one to two years away from being profitable on the e-commerce side. And he says that's getting easier as it has more online orders and denser delivery routes, Scott.

Well, Mr. Repko, appreciate it very much. Thank you. Seema Modi, tell us about gold. Well, Scott, down over 3% at this hour, a combination of that hotter than expected jobs report, plus new data from China's central bank showing a pause in new purchases following 18 straight months of buying. RBC Capital says, in our view, this does not mean China's buying is necessarily over, but a pause at this point after a long stretch of purchases, which now are occurring at record high prices, may be natural. Still, RBC is cautious on current levels, emphasizing the importance of next week's CPI report. Remember, gold just hit a record high last month. Scott? Seema, thank you. Good weekend to you. Seema Modi, Mike, I turn back to you. All right, Monday, it's going to be all about Apple, as we said. Wednesday, all about the Fed.

So we're going to be at Apple Park on Monday. We'll be at Dunlop's office at Double Line for the Fed decision. So can't wait for that. A couple of good things to be covering. So let's not forget about the Fed. We're going to get an outlook, too. That's most important. Yeah, and it feels as if it makes sense, I think even before the jobs number, to say that the dot plot, the outlook for what they think they might be able to do for cuts will probably settle around two as a median. And I think that won't disturb the market's current outlook. You know, Powell has said that he's not looking for any particular number, let's say, on wage growth before he gets an all clear to ease.

It's strictly about the reported inflation data in aggregate. Hasn't really kind of gotten a run of several months what they want. I do think the market is probably OK with, you know, more or less status quo. We've rolled forward the first rate cut multiple times this year and we've reduced the number multiple times this year. And it's been OK because we could lean back on an economy outperforming expectations. Is that story changing? I think there were hints of that this week that the market was at least afraid that growth was faltering a little more than just decelerating. I mean, June is OK. First, it's like not June, but then it'll be July. Well,

not July, then September. But to your point, the further you get along in the year and the further you keep pushing, then you really find out if the temperature of the market starts to get to an uneasy range where you need to take a little something. And today's, you know, the household labor market survey was something that could give ammunition to somebody who thinks that really things are weaker than expected and the Fed's going to be proven late. It's not the crucial thing. I think the bond market, you know, it took back a little bit of that yield decline today,

but it's still in a relatively comfortable zone. You know, talking about 25 record highs in the S&P so far year to date, you've never only had 25 if you got to 25. so we'll see if that matters in 2024. All right, good stuff. You have a good weekend. Thought we might get a new closing high on the S&P, but it doesn't look like it. We could be about eight, nine points shy of that, even as we settle out. Good weekend, everybody.

We'll see you from Apple Park on Monday. Cannot wait. Into OT with Morgan.